iPhonAsia comment: 3G licenses were “approved” at year’s end (2008) … and now (apparently) they will formally be “issued” … This will unleash about $41 billion (USD) in cap ex to build out 3G network capacity.

However, the industry source said all three operators will receive 3G licenses on the same day. It would be politically unwise for the government to issue a license to one operator before the other two, the source said.

China Telecom, which is getting a license based on the US-developed CDMA2000 technology, will likely be the fastest to launch 3G services, the source said. China Telecom will start operating 3G services in the affluent coastal provinces and some first-tier cities in less than a month, according to the source. China Telecom could then fine-tune its offerings before launching 3G services nationwide, probably in about three months.

China Unicom, which will offer services based on the European-backed WCDMA technology, will likely take more than a year before it can launch nationwide 3G services, according to the source. Unicom may be able to launch services in a few select cities after six months, the source said.

China Mobile has a headstart, having run a test network for two years based on homegrown TD-SCDMA.

Apple has two very recent Beijing Job postings that suggest iPhone may soon be “official” in China. The most recent posting (November 13, 2008) is for an iPhone Quality Assurance Engineer in Beijing. Apple has launched iPhone in China’s special administrative regions (Hong Kong and Macau), but not yet in greater China. The recent Beijing postings suggest that this is about to change.

iPhonAsia believes that it is possible that Apple already has contracted deals for two (2) new iPhones with two different China carriers (see below).

iPhone 3G number one will be a customized modelfor China Mobile and will likely be launched first. iPhone number two will be offered through China Unicom and will come later in 2009.

1) iPhone for China Mobile: A customized TD iPhone 3G for China Mobile with a chipset to support the “China built” TD-SCDMA 3G and GSM (EDGE 2.5 G) … There is an outside chance that the TD iPhone 3G chipset will also support CMMB protocol – China’s self-developed mobile TV standard. This special model for China will be a major compromise for Apple as standard features may be limited (e.g. no WiFi no iTunes no App Store) with added support for China Mobile’s value added services (Monternet) platform. This type of crippling customization is an almost unthinkable divergence in strategy for Apple and I can already hear the “no ways!” … However, China (nation) may have pushed hard for just such a compromise as a way to promote their nascent TD-SCDMA network. TD-SCDMA is important to China. Think of this compromise as Apple’s entrance fee into China’s highly controlled handset market. The good news is that a large share of Apple’s risks/costs in developing this customized TD iPhone 3G will be born by China Mobile’s parent CMCC (i.e. China). How? Apple won’t manufacture a customized model unless there is a large pre-sale to China Mobile for inventory. If the model is a hit, Apple can quickly ramp up production beyond the pre-sale quantity. If TD-SCDMA is a dud, no problem, the current run is already paid for.

2) iPhone for China Unicom: A full featured (non-customized, non-crippled) iPhone 3G for China Unicom. China Unicom will be granted a W-CDMA 3G license. The current iPhone 3G already supports the world standard W-CDMA 3G protocol. Hence, there may be no need for a special production run to deliver this model. China’s Ministry of Information Industry Technology (MIIT) will very probably delay China Unicom’s W-CDMA 3G license issuance for a few months after issuance of China Mobile’s TD-SCDMA 3G license (yep, blatant favoritism for the “China built” TD-SCDMA). The launch of the iPhone for China Unicom will likely come mid/late 2009.

More below on development of China 3G networks.

iPhonAsia comment: If the update below is accurate (we remain a bit skeptical), W-CDMA trials begin in Shanghai in early 2009 and a full cross-China network will be built out soon thereafter.

We won’t hold our breath as China ministries are the gatekeeper and ready or not, W-CDMA won’t go live until the MIIT issues the pre-requisite 3G license. The ministries have thus far been doing everything they can to give their home-grown TD-SCDMA 3G the upper hand in China. Many have predicted that licenses for W-CDMA and CDMA2000 will be conveniently delayed until TD-SCDMA finds its legs.

iPhonAsia has also observed a recent battle brewing between key ministry officials and China Mobile executives who have been saddled with the responsibility for TD-SCDMA.One month it appears that the ministries are calling all of the shots and the next month it appears that China Mobile has regained their hand. Who is controlling the agenda today? In reading the tea leaves (articles, articles and more articles), it looks like China Mobile is reasserting their influence. Front and center on China Mobile’s agenda isTD-LTE 4Gnot TD-SCDMA. Supporting this thesis are two recent clues:

Clue 1: Deleted by editor per source request (apologies to readers)

Clue 2: Before the Beijing Summer Olympics, the MIIT had chastised China Mobile for not focusing enough on TD-SCDMA.The Olympic flame has now been doused and so too has the “you’re not doing enough” admonishments from the ministries. Now that the “TD-SCDMA heat” has dissipated, China Mobile is in fact moving ahead with haste to develop TD-LTE.

The China Telecom Industry Restructuring Plan appears to be changing a bit. There may be one or two backroom compromises and deals in the works over TD-SCDMA and the future of wireless. We may never know if or how plans have changed. Yet one fact remains clear – TD-SCDMA’s long term viability remains a question mark. The more I read about China Mobile’s fast-track plans for TD-LTE 4G, the more I doubt that China’s ministries can delay issuance of the 3G licenses to all three of China’s carriers. If TD-SCDMA is not going to be accepted by consumers, then why not issue all three 3G licenses now, allow China Mobile to rapidly develop their 4G TD-LTE, and let true competition sort out the winners and losers?

If you haven’t seen the grand plan, here is the thumbnail roadmap for 3G licensure in China:

China Unicom has started testing its WCDMA trial network in 700 locations across seven cities including Shanghai and Shenzhen, reports ChinaByte quoting an unnamed insider. Previous reports said China Unicom had completed WCDMA network construction and testing in more than 60 Shanghai locations and expected to disseminate the network within 2-3 months.

A spokesperson for China Unicom’s 3G services promotion project said that China Unicom has made preparations to build a WCDMA network within 2-3 months after the issuance of 3G licenses. The company’s construction of a WCDMA network would not require changes to the core network, and antennas could be shared between new and existing equipment; the only change necessary would be a smooth upgrade of wireless base stations. China Unicom began soliciting bids for WCDMA network equipment last week, and expects to have results within a month.

A source at China Unicom said that networks in Shanghai, Beijing, and Guangzhou would immediately implement the highest level of WCDMA currently in existence – HSDPA and HSUPA 3.5G modes, with internet download speeds of 14.4 Mbps and upload speeds of 5.76 Mbps. Current TD-SCDMA and CDMA2000 networks have download speeds of less than 4Mbps.

China Unicom figures show that 11% of Shanghai mobile users use imported mobile phones; of these, 95% are WCDMA handsets. These users will be able to take advantage of China Unicom’s WCDMA services with only a change to a China Unicom SIM card.

At the same time, a spokesperson for Shanghai Mobile revealed that as of late October, more than 20,000 TD-SCDMA data cards had been sold in Shanghai, of which more than 3,000 were TD-HSDPA cards.

October 11th, 2008Today we heard a rumor that iPhone will have 2 versions. The rumor is that the second version will be a smaller smart phone.

October 8th, 2008We just got our first Insider sniff of a 3rd generation iPhone being worked on in China. We expected, but not this soon. We will keep you posted in diary fashion as the photos come in.

Once again iPhone rumors are floating in China . The latest is that the next generation iPhone released will be not be one iPhone but two iPhones! Why is China the place where these rumors start? Simple, thousands of people are involved in building iPhones and those that have the means know how to get inside information, once it starts the information spreads. These rumors are used by accessory manufacturers and agents in China to decide what they will produce, when they will start to manufacturer it and when they should unload the old stock. The right decisions could mean millions of dollars if you get it right and you get it early. Our Insider diary will give you the rumors as we hear them and we will post photos and dimensions as we see them. If you are an accessory company we don’t have to tell you that you should take the information at your own risk. If you are a consumers, it will be interesting to follow how things unfold.

Guest Comment: 10/12/2008 5:43:42 AM from SHENZHEN GUANGDONG CHINA
One of my China suppliers told me that the new iPhone will be out by January. She did not mention anything about 2 iPhones. She also knew about the last iPhone a one month before any news was posted online.

iPhonAsia Comment: What is “customization” in the context of the wireless handset market? Mobile operators often make direct purchases from handset manufacturers (ZTE, Nokia, Apple?) and then brand (carrier’s logo) and customize the phones to make them more “appealing” (or so the carrier’s like to believe) to consumers or more directly support the carrier’s value added services platform. Customized phones are popular in the pre-pay market.

“iPhone is not the only choice,” Wang Jianzhou, chairman of China Mobile, declared to the media shortly after it was heard that an iPhone will be introduced into mainland China by China Mobile in November.

On September 26, a day before the Davos Forum opened in Tianjin,China Mobile, jointly with Samsung, announced the launch of the Samsung i908E on the Chinese market. This type of cell phone, into which China Mobile’s many services will be installed, was first issued globally in July as Apple iPhone’s most direct rival.

Xu Da, head of marketing for China Mobile, said customization would become a model for China Mobile’s cooperation with more cell phone makers in future.

Apple’s product aims for the 3G market, and over one million 3G version iPhones were sold within three days of its issue. Although the iPhone has not been officially released on the Chinese market, at least 0.4 million have entered the Chinese market illegally, a demonstration of Chinese consumers’ interest in the product.

Chinese operators have not yet decided to let Chinese users buy Apple iPhones through legal channels and enjoy all the fun.

Apart from a lack of a model for cooperation and profit allocation between China Mobile and Apple, another concern comes from 3G and Wi-Fi function.

China Mobile wants Apple to make an iPhone specifically for the Chinese market, cancelling the 3G and Wi-Fi functions in this product, because the TD-SCDMA network, built by China Mobile, is not compatible with the other two types of 3G networks, WCDMA and CDMA2000. China Mobile doesn’t want to introduce a type of iPhone which is compatible with WCDMA network, lest users decrypt this type of iPhone and transfer to China Unicom or China Telecom’s network. The 0.4 million iPhones already in China are decrypted units.

Some analysts believe iPhone is not China Mobile’s ideal business partner anyway. Not long ago, iPhone appeared on a China Unicom on-line poster for 3G network.

Other 3G phones may also become iPhone rivals in the Chinese market. China Mobile, as the only Chinese operator of the Android alliance, has contacted Google, and may introduce Google’s android cell phone G1 to the Chinese market by the end of the year.

Wang Jianzhou said in June this year that the biggest obstacle for its cooperation with Apple had been removed. But now it seems things have changed. China Mobile’s competition with China Unicom is ongoing, and Google, Samsung, and Apple will compete in China’s 3G market.

The only uncertainty is that China Mobile’s negotiation with Apple is continuing. Every one still has chance.

With the Beijing Olympics just around the corner, China is speeding up efforts to promote its home-grown 3G (third generation) standard TD-SCDMA.

As the test TD-SCDMA network in 10 Chinese cities has now been completed and with increasing participation of foreign and domestic companies, the government is preparing TD-SCDMA for its debut, in an effort to help it win a better position in the country’s upcoming 3G arena.

“We have spent less than one year to build the TD-SCDMA test network in Shenyang and its coverage has reached 95 percent of the current 2G network in the city,” said Guo Yingao, vice-president of China Mobile’s arm in Liaoning province, whose capital Shenyang will hold some Olympic events.

“Although the network is still not perfect at the moment, it is ready for the Olympics,” he added.

China Mobile was mandated to build TD-SCDMA trial networks since last year in 10 cities, including Beijing, Shanghai and Guangzhou, and began the first public trial on April 1.

The battle of standards

China launched a plan to overhaul its telecom industry in May, in which the country’s six telecom operators will be merged into three to provide both fixed-line and mobile services. It has promised to issue three 3G licenses as soon as the restructuring is completed.

It was reported that China Mobile would get the TD-SCDMA license while China Telecom and China Netcom will get theirs based on the WCDMA and CDMA2000 standards respectively.

The government hopes that by establishing the TD-SCDMA “test” network half to one year earlier than its other two rivals, the home-grown standard could have a better chance of succeeding in competing with WCDMA and CDMA2000, which were considered more mature.

However, the government’s efforts to back the TD-SCDMA has long lacked support, especially from multinationals such asNokia and Motorola, which were reluctant in releasing products based on the TD-SCDMA standard.

These companies have invested a lot in the other two standards and have already released related products.

The lack of support reached a climax in April when Kaiming Communication Co, one of the major TD-SCDMA chip production and research companies in China, went into bankruptcy after its shareholders such as Texas Instruments and Nokia had long been reluctant to continue their investment in the company.

After that, some news reports even said China’s TD-SCDMA is in “Euthanasia”, citing Li Shihe, former Datang Mobile chief scientist known as the “Father of TD-SCDMA”.

Winds of change

Things have changed since one month ago, however, when China launched its new Ministry of Industry and InformationTechnology (MIIT). Li Yizhong, minister of MIIT, said in July that the government would fully support the TD-SCDMA standard as much as the country backed the Shenzhou program, China’s human spaceflight project that sent one Chinese crewmember into space in 2003.

China Sees Release Of First TD-SCDMA/CMMB Handset

China Wireless Technologies Limited (2369.HK) subsidiary Yulong Coolpad announced the first domestic TD-SCDMA/CMMB handset on July 28, reports Sina. Unfortunately, the handset is not currently for sale. China Mobile (NYSE: CHL, 941.HK) bought 5,000 TD-SCDMA/CMMB handsets from Yulong Coolpad in the mobile operator’s third round of TD-SCDMA bidding, reports Communications Weekly quoting a related handset provider. During the same round, China Mobile bought 24,000 phones from Guangzhou-based handset maker New Postcom, 8,000 phones from ZTE (600063.SZ, 0763.HK), 3,000 phones from Lenovo Mobile and 100 phones from Samsung, said the insider.

China Mobile expects to receive its first batch of TD-SCDMA/CMMB handsets on July 31, with all handsets scheduled to come in before August 8 — the date of the opening ceremony of the 2008 Olympic Games, reports Sina quoting China Mobile technology general manager Zhou Jianming. The company intends to donate the more than 40,000 TD-SCDMA products to Olympic volunteers, journalists and related staff. China Mobile partnered with the State Administration of Radio, Film and Television (SARFT) on the China Mobile Multimedia Broadcasting (CMMB) standard for TD-SCDMA phones earlier this month.